That's patently false.
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edge?
- Thread starter Took2Summit
- Start date
Right and if you want a real life example of this played out and documented as it happened read neke's series of journals for the past 5 or six years.Quote from Took2Summit:
right, and i agree with you, i also would not have participated in black monday, and im sure a lot of us would have gotten out scratch free. i wasn't making the point to say black monday could/would wipe us out, i made the point to say you can't really rely on probabilities when the possibility of an 18SD event can occur.
i used to play poker professionally (had to stop thanks to doj). i had a tried and true 12% roi in the games i played. with that said, there were times i would go playing literally hundreds of thousands of hands losing money, but i would keep playing the way i knew because i knew in a sample of 5 million hands i would have a 12% roi, and it was true. this is because i had a statistical edge.
in trading, your what you presume to be an edge can vanish, and you can play the next 100,000 hands assuming you have a 12% roi, when now you have a -2% roi because unknown variables entered the game. and to compound matters even worse, you might even actually make your 12% over these 100,000 hands when you now actually have a -2% roi, thus adding to the delusion.
so, is it possible to have an edge? any strategy at any point can have a new variable added to it, and you could make tons of money before you figure out that there's a new variable, however that variable could have taken away your edge, even though you are still making money.
http://www.elitetrader.com/vb/showthread.php?s=&threadid=234860
Some people could probably made a huge fortune on 1987 Black Monday event. Remembering the 2010 May 6 flash crash, most people might lost money, but a small percentage traders made a huge profits on that day, that is called edge. An edge is an individual skill to read the market and take advantage of any market situations by L or S, no matter it is 1 SD or 18 SD.
Quote from Took2Summit:
I'm curious, if the black Monday event that took place in 1987 was an 18 standard deviation move (on the conservative side) which should happen less often then 1 in the entire duration of the universe (were we just so lucky in the first say 100 years of the market to see a once in a universe event?). How can people claim to have an edge? I know risk management can limit your losses from a 1 day 18SD event, but what's to say a 5 year stretch doesn't hit an 18 SD event? How can you even have statistics on events that all possibilities aren't even known? Statistics on dice or cards are obvious as all possibilities are a given, but how can someone assume they know all possibilities in the stock market? Are edges just delusional? Real question looking for thoughtful answers.
Quote from Took2Summit:
right, and i agree with you, i also would not have participated in black monday, and im sure a lot of us would have gotten out scratch free. i wasn't making the point to say black monday could/would wipe us out, i made the point to say you can't really rely on probabilities when the possibility of an 18SD event can occur.
i used to play poker professionally (had to stop thanks to doj). i had a tried and true 12% roi in the games i played. with that said, there were times i would go playing literally hundreds of thousands of hands losing money, but i would keep playing the way i knew because i knew in a sample of 5 million hands i would have a 12% roi, and it was true. this is because i had a statistical edge.
in trading, your what you presume to be an edge can vanish, and you can play the next 100,000 hands assuming you have a 12% roi, when now you have a -2% roi because unknown variables entered the game. and to compound matters even worse, you might even actually make your 12% over these 100,000 hands when you now actually have a -2% roi, thus adding to the delusion.
so, is it possible to have an edge? any strategy at any point can have a new variable added to it, and you could make tons of money before you figure out that there's a new variable, however that variable could have taken away your edge, even though you are still making money.
You are actually asking a $1M question.Essentially,your speaking about the so called swans.There are several realisations i`ve come to,to help to avoid the swans issue and to keep an edge.
They are as follows:
1.Capitalization;
2.Using stops outside 3 SD;
3.Avoidance of the opening and closure,holidays,news releases,etc;
4.Setting up the targets equal to 3 SD;
5.Reducing trading frequency,commisions.
Buy taking these steps,it seems possible to keep an edge over the long haul.
Specifically #2 would ensure you of huge losses on black monday oct 19 1987.Quote from TheMagican:
You are actually asking a $1M question.Essentially,your speaking about the so called swans.There are several realisations i`ve come to,to help to avoid the swans issue and to keep an edge.
They are as follows:
1.Capitalization;
2.Using stops outside 3 SD;
3.Avoidance of the opening and closure,holidays,news releases,etc;
4.Setting up the targets equal to 3 SD;
5.Reducing trading frequency,commisions.
Buy taking these steps,it seems possible to keep an edge over the long haul.
Back then the computers couldn't keep up with the volume of transactions and price was essentially unknown just like in 1929.
Nowadays with faster computers & the trading halts in place it's less likely the system will be overloaded by volume but it's not at all certain that trading halts won't make the selling situation worse.
Quote from PHOENIX TRADING:
Specifically #2 would ensure you of huge losses on black monday oct 19 1987.
Back then the computers couldn't keep up with the volume of transactions and price was essentially unknown just like in 1929.
Nowadays with faster computers & the trading halts in place it's less likely the system will be overloaded by volume but it's not at all certain that trading halts won't make the selling situation worse.
setting stops outside the 3 SD simply means that your entries should be somewhere nearby.